ATUL M. RAMAIYA, MUMBAI v. ADDL CIT RG 24(1), MUMBAI

ITA 5081/MUM/2009 | 2006-2007
Pronouncement Date: 23-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 508119914 RSA 2009
Assessee PAN AAAPR8012P
Bench Mumbai
Appeal Number ITA 5081/MUM/2009
Duration Of Justice 2 year(s) 15 day(s)
Appellant ATUL M. RAMAIYA, MUMBAI
Respondent ADDL CIT RG 24(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 23-09-2011
Assessment Year 2006-2007
Appeal Filed On 07-09-2009
Judgment Text
1 ITA 5081 /M/2009 ATUL M. RAMAIYA. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A BEFORE SHRI D. MANMOHAN V.P. AND SHRI R.K. PANDA A.M. ITA NO. 5081/MUM/2009 ASSESSMENT YEAR 2006-07 ATUL M. RAMAIYA 23 DATTANI CHAMBERS OPP. SHANTINATH SHPPING CENTER S.V. ROAD MALAD (W) MUMBAI 400 064. PAN AAAPR8012P VS. ADDL. C.I.T. RANGE 24(1) PRATYAKSHA KAR BHAVAN BANDRA-KURLA COMPLEX BANDRA (EAST) MUMBAI.400 051. APPELLANT RESPONDENT APPELLANT BY SHRI B.V. JHAVERI RESPONDENT BY SHRI P.C. MAURYA DATE OF HEARING 30.6.2011 DATE OF PRONOUNCEMENT 23.9.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DT. 20.07.2009 OF CIT(A)- XXIV MUMBAI RELATING TO A.Y . 2006-07. 2. THE ASSESSEE IN HIS GROUNDS OF APPEAL NO. I & II HAS CHALLENGED THE ORDER OF THE LD. CIT(A) UPHOLDING THE ACTION OF THE A.O. IN TREATING THE SHORT TERM CAPITAL GAINS OF ` 1 81 06 413/- AND LONG TERM CAPITAL GAINS OF ` 35 34 865/- AS BUSINESS INCOME. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN BUSINESS OF SHARES AND SECURITIES. HE CLAIMED S OME TRANSACTIONS IN SHARES AND SECURITIES AS TRADE AND OTHER TRANSACTIONS THER EIN IN AS INVESTMENT. HE 2 ITA 5081 /M/2009 ATUL M. RAMAIYA. SHOWED INCOME FROM BUSINESS AT ` 1 66 65 117/- AND CAPITAL GAINS AT ` 2 16 41 278/- ON ACCOUNT OF SALE OF SHARES AND SECU RITIES. THE A.O. EXAMINED THE TRANSACTIONS IN DETAILS AND OBSERVED THAT IN TR ADING BUSINESS THE ASSESSEE HAD PURCHASED 3 44 248 NUMBER OF SHARES AND HAD SOL D 3 63 528 NUMBER OF SHARES. NUMBER OF SCRIPS TRADED IN WAS 22 OUT OF W HICH 18 SCRIPS WERE PURCHASED DURING THE YEAR. ON INVESTMENT ACCOUNT T HE ASSESSEE HAD PURCHASED 2 66 135 NUMBER OF SHARES AND HAD SOLD 2 86 410 NUMBER OF SHARES. OUT OF 2 86 410 NUMBER OF SHARES ONLY 20 2 75 SHARES WERE OPENING STOCK AND THE BALANCE SHARES WERE PURCHASED DURING THE YEAR ONLY. IN PERCENTAGE TERMS ONLY 7% OF SALES WERE MADE OUT OF OPENING STOCK DURING THE YEAR AND THE REST 93% OF SALES WAS MADE FROM THE PU RCHASES MADE DURING THE YEAR. THE RATIO OF PURCHASE TO SALE WAS NEARLY ONE . THE SHARES WERE HELD FOR SHORT PERIODS OF ONE TO TWO MONTHS. LOANS OF ` 15.88 CRORES WERE TAKEN DURING THE YEAR. THE DIVIDEND INCOME WAS ` 5 72 911/- ONLY BEING MINOR PERCENTAGE OF TOTAL RECEIPTS. THE VOLUME AND FREQUENCY OF TRAN SACTIONS WERE VERY HIGH. THE ASSESSEE WAS ENGAGED IN AN ORGANIZED ACTIVITY OF PU RCHASE AND SALE OF SHARES WITH PROFIT MOTIVE. THERE WAS NO INTENTION OF THE A SSESSEE TO HOLD THE SHARES AS INVESTMENT. THE INTENTION WAS TO EARN PROFITS BY S ELLING THEM. THERE WAS NO DIFFERENCE IN THE MANNERS IN WHICH THE TRANSACTIONS ON TRADING ACCOUNT AND THOSE ON INVESTMENT ACCOUNT WERE CARRIED ON EXCEPTI NG THE ENTRIES IN THE BOOKS OF ACCOUNTS. THE A.O. HELD THAT MERE ENTRIES IN TH E BOOKS OF ACCOUNTS SHOWING SHARES AS INVESTMENTS CANNOT BE A DETERMINATIVE FAC TOR TO DECIDE THE REAL NATURE OF TRANSACTIONS. HE ALSO RELIED ON SEVERAL J UDGMENTS IN SUPPORT OF THIS PROPOSITION OF LAW. HE RELIED ON THE CBDT CIRCULAR NO. 4/2007 DATED 15.06.2007 AND ANALYSED THE FACTS OF THE CASE IN AC CORDANCE THEREWITH. HE OBSERVED THAT THE ASSESSEE WAS HAVING THE SOLE ACTI VITY OF BUYING AND SELLING OF SHARES THE TRANSACTIONS WERE CARRIED ON CONTINUOUS LY AND REGULARLY IT WAS WHOLE TIME OCCUPATION OF THE ASSESSEE ETC. HE RELI ED ON SEVERAL JUDGMENTS WHEREIN IT WAS HELD THAT THE VOLUME FREQUENCY CON TINUITY AND REGULARITY OF THE TRANSACTIONS WOULD DECIDE WHETHER A PERSON WAS A TR ADER OR AN INVESTOR. IN 3 ITA 5081 /M/2009 ATUL M. RAMAIYA. VIEW OF ALL THESE FACTS AND THE DETAILED DISCUSSION S OF SEVERAL JUDGMENTS IN THE ASSESSMENT ORDER THE A.O. HELD THAT THE ASSESSEE W AS ENGAGED IN ONLY ONE ACTIVITY I.E. THE ACTIVITY OF EARNING PROFITS THROU GH SALE AND PURCHASE OF SHARES. THE EXPENSES INCURRED THEREON WERE INSEPARABLE AND SO THE ENTIRE INCOME FROM THE TRANSACTIONS IN SHARES AND SECURITIES WAS ASSES SABLE AS BUSINESS INCOME. HE ACCORDINGLY ASSESSED THE SHORT TERM CAPITAL GAIN OF ` 1 81 06 413/- AND LONG TERM CAPITAL GAIN OF ` 35 34 865/- AS BUSINESS INCOME. 3.1 BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED T HAT THE ASSESSEE WAS BOTH A TRADER AS WELL AS AN INVESTOR IN SHARES. WHETHER A PARTICULAR SHARE WAS TO BE HELD ON INVESTMENT ACCOUNT OR ON TRADING ACCOUNT WA S DECIDED AT THE TIME OF PURCHASE ONLY. THE TRANSACTIONS WERE ACCOUNTED FOR IN THE BOOKS ACCORDINGLY. IN THE CASE OF INVESTMENT SHARES WERE PURCHASED ON CE OR TWICE AND AFTER THEIR SALE THE SAME SCRIP WAS NOT PURCHASED. IN THE CASE OF TRADE THE ASSESSEE ENTERED INTO TRANSACTION OF THE SAME SCRIP MORE TIM ES DURING THE YEAR. THE ASSESSEE HAD DEALT IN 15 SCRIPS ONLY ON INVESTMENT ACCOUNT AND THE HOLDING PERIOD WAS MORE THAN A MONTH. HOWEVER THE PERIOD OF HOLDING A PARTICULAR SCRIP IS NOT A RELEVANT CRITERION FOR THE PURPOSE T O DECIDE WHETHER SUCH SCRIPS WERE HELD ON INVESTMENT ACCOUNT OR ON TRADE ACCOUNT . THE ASSESSEE HAD PURCHASED THE SHARES ON INVESTMENT ACCOUNT BY USING THE CAPITAL OF THE MEMBERS OF HIS FAMILY AND HE HAD NOT PAID ANY INTER EST TO SUCH MEMBERS. THE COURTS AND THE CBDT HAVE ACCEPTED THAT A PERSON MAY BE A TRADER AS WELL AS AN INVESTOR IN SHARES. THE DIVIDEND YIELD CANNOT BE A CRITERION TO DECIDE WHETHER THE ASSESSEE WAS A TRADER OR AN INVESTOR. EVEN INVESTOR MAKES INVESTMENT FOR ENJOYING APPRECIATION IN VALUE OF SH ARES AND DIVIDEND YIELD IS ONLY INCIDENTAL. DUE TO UNCERTAIN MARKET CONDITIONS EVEN A SERIOUS INVESTOR FREQUENTLY SHUFFLES HIS PORTFOLIO. THE FACT THAT 9 3% OF THE SHARES SOLD FROM INVESTMENT PORTFOLIO WERE OUT OF SHARES PURCHASED D URING THE YEAR DOES NOT PROVE THAT THE ASSESSEE WAS A TRADER IN SHARES. TH E NATURE OF TRANSACTIONS BOTH ON ACCOUNT OF TRADE AND INVESTMENT CANNOT BE D IFFERENT AND SO THE MOTIVE 4 ITA 5081 /M/2009 ATUL M. RAMAIYA. AT THE TIME OF PURCHASE WOULD DECIDE THEIR NATURE. THE ASSESSEE ALSO RELIED ON VARIOUS JUDGMENTS AND REQUESTED THAT THE A.O. SHOUL D BE DIRECTED TO ASSESS THE CAPITAL GAINS ON THE SALE OF SHARES AS PER THE CLAI M OF THE ASSESSEE. 3.2 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. AND REJECTED THE CLAIM OF SH ORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN BY HOLDING AS UNDER:- 5.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS FOR THE APPELLANT CAREFULLY. THE NATURE AND MANNER OF TRANS ACTIONS DEMONSTRATE THAT THE APPELLANT WAS ENGAGED IN ONLY ONE ACTIVITY OF TRADING IN SHARES. HE WAS NOT AN INVESTOR IN SHARES BUT WAS A DEALER I N SHARES ONLY. IN FACT IT WAS THE ONLY BUSINESS ACTIVITY OF THE APPELLANT. HE WAS FULLY ENGAGED AND INVOLVED IN THIS ACTIVITY OF PURCHASE AND SALE OF S HARES. THERE WAS NO MATERIAL DIFFERENCE IN THE MANNER OF DOING TRANSACT IONS ON TRADE PORTFOLIO OR THAT ON INVESTMENT PORTFOLIO. BOTH ON TRADE AS W ELL AS INVESTMENT PORTFOLIOS THE TRANSACTIONS IN THE PURCHASE AND SAL E OF SHARES WERE MADE FREQUENTLY CONTINUOUSLY AND ON REGULAR BASIS. THE HOLDING PERIOD OF MANY SHARES SHOWN ON INVESTMENT PORTFOLIO ALSO WAS SMALL . 93% OF SHARES SOLD ON INVESTMENT ACCOUNT WERE PURCHASED DURING THE YEA R ONLY. THE VOLUME OF TRANSACTIONS WAS ALSO VERY HIGH. THE NUMBER OF TRAN SACTIONS IN PURCHASES AND SALES WAS SUBSTANTIALLY HIGH EVEN ON INVESTMENT PORTFOLIO. AS THERE WAS LARGE VOLUME FREQUENCY CONTINUITY AND REGULAR ITY IN TRANSACTIONS EVEN ON INVESTMENT ACCOUNT THE APPELLANT CANNOT BE SAID AS AN INVESTOR IN SUCH SHARES. THE ISSUE IS DIRECTLY COVERED AGAINST THE APPELLANT BY THE DECISION OF THE HON'BLE ITAT AHMEDABAD BENCH IN TH E CASE OF DCIT VS. DEEPA SHAH (99 ITD 219) IN WHICH IT HAS BEEN HELD T HAT VOLUME FREQUENCY CONTINUITY AND REGULARITY OF TRANSACTIONS IN SHARES MAKES IT BUSINESS OF SHARES AND NOT INVESTMENT IN SHARES. THE CBDT ISSUE D CIRCULAR NO.4 / 2007 DATED 15.06.2007 AFTER CONSIDERING VARIOUS JUD GMENTS ON THE IDENTICAL ISSUE. THE CIRCULAR CONFIRMED THE VIEWS T AKEN BY VARIOUS COURTS THAT THE MAGNITUDE OF PURCHASE AND SALE PERIOD OF HOLDING AND MOTIVE BEHIND THE TRANSACTION WOULD DETERMINE WHETHER A PE RSON IS A DEALER IN SHARES OR AN INVESTOR IN SHARES. IN THE PRESENT CAS E THE MAGNITUDE OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES WAS SUB STANTIAL THE AVERAGE PERIOD OF HOLDING OF SHARES WAS SMALL AND THE MOTIV E WAS DEFINITELY DEALING IN SHARES FOR PROFIT AND NOT MAKING ANY INV ESTMENT. THE APPELLANT HAD USED HUGE LOAN OF RS.15.88 CRORES IN THE TRANSA CTIONS IN A COMMON WAY. THE FEATURES OF ALL THE TRANSACTIONS IN SHARES WERE SIMILAR. THEY WERE TRANSACTED IN A LIKE MANNER FUNDS WERE COMMON COMMON OFFICE SET UP WAS USED & EXPENSES WERE INSEPARABLE. ALL THESE FACTS SHOW THAT THE APPELLANT CARRIED ON THE TRANSACTIONS IN SHARES LIK E A TRADER ONLY & HE CLAIMED A SUBSTANTIAL PORTION OF SUCH TRANSACTIONS AS INVESTMENT ONLY FOR THE PURPOSE OF TAX BENEFITS. 5 ITA 5081 /M/2009 ATUL M. RAMAIYA. 5.2 IT IS A SETTLED POSITION OF LAW THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS DOES NOT D ECIDE THE TAXABILITY OF A RECEIPT. IN FACT THE NATURE AND CHARACTER OF TRAN SACTIONS DECIDE THE TAXABILITY OF A RECEIPT. THIS PROPOSITION OF LAW WA S LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF STATE BANK OF INDIA VS . CIT [1986] 157 ITR 67. SIMILAR JUDGMENT WAS GIVEN BY HON'BLE SUPREME C OURT IN THE CASE OF TUTICORIN ALKALI VS. CIT [227 ITR 172]. HON'BLE SUP REME COURT IN THE CASE OF K.C.P. LIMITED VS. CIT [2000] 245 ITR 421 THAT IT I S THE TRUE NATURE AND QUALITY OF THE RECEIPT AND NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE BOOKS OF ACCOUNTS IS DECISIVE. ASSESSEES STYLE OF WRITING OF THE ACCOUNT BOOKS CANNOT ALTER THE REAL NATURE OF THE RECEIPT. SO WHAT IS IMPORTANT IS THE NATURE AND CHARACTER OF THE RECEIPT AND NOT THE MANNER OF ENTRY IN THE BOOKS. THE STOCK-IN-TRADE OF SHARES CANNOT BECOME I NVESTMENT IN SHARES ONLY BECAUSE THE APPELLANT ENTERED SO IN HIS ACCOUN TS. THE QUANTUM OF TAX ON THE INCOME FROM THE SALE OF SHARES KEPT AS INVES TMENT IS MUCH LOWER THAN THE INCOME ON THEIR SALE AS STOCK-IN-TRADE. SO THE APPELLANT HAD SHOWN A PORTION OF THE SHARES AS INVESTMENT THOUGH HE WAS A REGULAR DEALER THEREIN FOR THE OBVIOUS PURPOSE TO REDUCE TH E QUANTUM OF TAX ON THEIR SALE. AS SUCH I DO NOT AGREE WITH THE APPELLA NT THAT HE WAS AN INVESTOR IN SHARES ALSO BECAUSE HE HAD MENTIONED TH EM AS INVESTMENT IN HIS ACCOUNTS. 3.3 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) TH E ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DURING THE IMPUGNED A.Y. HAS TRADED IN SHARES QUOTED AT THE ST OCK EXCHANGE AS WELL AS MADE INVESTMENT IN SHARES AND HELD THEM AS INVESTME NT. THUS THE ASSESSEE HAS CARRIED OUT THE ACTIVITIES OF BOTH TRADING AND INVESTMENT DURING THE YEAR WHICH WAS CONTINUOUSLY CARRIED OUT BY THE ASSESSEE IN THE SAME MANNER STARTING FROM A.Y. 2002-03 TO 2005-06. REFERRING T O PAPER BOOK PAGE 69 HE SUBMITTED THAT THE SHORT TERM CAPITAL GAIN OF ` NIL AND LONG TERM CAPITAL GAIN OF ` 53/- WAS DETERMINED BY THE A.O. IN THE BODY OF THE ASSESSMENT PASSED U/S 143(3) OF THE ACT FOR THE A.Y. 2002-03. IN THE SAID A.Y. THE ASSESSEE HAD REFLECTED AN AMOUNT OF ` 71 71 188/- AS INVESTMENT IN SHARES IN THE BALANCE SHEET. HE SUBMITTED THAT DURING THE A.Y. 2003-04 THE INVESTMENT HAD GONE UP TO ` 71 84 138/- AND SHORT TERM CAPITAL GAIN OF ` 52/- AND LONG TERM CAPITAL GAIN OF ` 3 66 051/- WAS ACCEPTED IN THE ORDER PASSED U/S 14 3(1) OF THE ACT. HE SUBMITTED THAT THE LOSS FROM TRADING IN SHARES A T ` 65 26 170/- WAS 6 ITA 5081 /M/2009 ATUL M. RAMAIYA. DECLARED BY THE ASSESSEE DURING A.Y. 2003-04 WHICH WAS ALSO ACCEPTED U/S 143(1) OF THE ACT. HE SUBMITTED THAT IN THE A.Y. 2 004-05 THE A.O. IN THE ORDER PASSED U/S 143(3) HAS ACCEPTED THE SHORT TERM CAPIT AL GAIN OF ` 1 90 935/- LONG TERM CAPITAL LOSS OF ` 1 25 859/- AND PROFIT FROM TRADING IN SHARES AT ` 6 86 31 402/-. THE INVESTMENT DECLARED AT ` 62 21 388/- IN THE BALANCE SHEET HAS NOT BEEN DISTURBED. HE SUBMITTED THAT IN A.Y. 2005-06 THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF ` 67 20 100/- LONG TERM CAPITAL GAIN OF ` 1 69 094/- AND INCOME FROM TRADING IN SHARES AT ` 1 22 78 806/- WHICH HAS BEEN ACCEPTED U/S 143(1) OF THE ACT. IN THE SAID YE AR INVESTMENT IN SHARES AT ` 4 97 70 411/- HAS BEEN DECLARED IN THE BALANCE SHEE T UNDER THE HEAD INVESTMENT IN SHARES. HE SUBMITTED THAT THE SHAR ES HELD AS INVESTMENT BY THE ASSESSEE ARE VALUED AT COST WHEREAS SHARES HELD ON TRADING ACCOUNT HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER A ND ACCORDINGLY REFLECTED AS STOCK IN TRADE IN THE BALANCE SHEET OF THE ASSESSEE . REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT V. DINESH K. MEHTA HUF REPORTED IN 39 SOT 488 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECI SION HAS HELD THAT WHEN SHARES HAVE BEEN TREATED AS INVESTMENT IN BOOKS OF ACCOUNT AND MOREOVER SIMILAR CLAIM OF ASSESSEE HAVE BEEN ALLOWED IN EARL IER YEAR THEREFORE FOLLOWING RULE OF CONSISTENCY THE CLAIM OF THE ASSESSEE HAS T O BE ALLOWED IN THE IMPUGNED A.Y. THE VARIOUS OTHER DECISIONS OF THE TRIBUNAL W ERE ALSO CITED BY THE LD. COUNSEL FOR THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. 4.1 REFERRING TO PAGE 6 OF THE PAPER BOOK HE SUBMI TTED THAT THE SHARES HELD ON INVESTMENT ACCOUNT WERE PURCHASED ONCE OR TWICE AND THEREAFTER THEY WERE SOLD BY THE ASSESSEE BOOKING APPRECIATION FROM THE SAID INVESTMENT. AFTER ALL THE SHARES OF THE SAID SCRIPS ARE SOLD AT ONE GO OR IN PIECEMEAL AND THE ASSESSEE HAD NOT ENTERED INTO ANY TRANSACTION OF TH E SAID SCRIP ONCE AGAIN. THIS SHOWS THE INTENTION OF THE ASSESSEE THAT HE HA D PURCHASED THE SAID SHARES FOR THE PURPOSE OF INVESTMENT ONLY. THE LD. COUNSE L FOR THE ASSESSEE REFERRING TO THE CHART AT PAGE 2 OF THE WRITTEN SUBMISSION SU BMITTED THAT THE FREQUENCY 7 ITA 5081 /M/2009 ATUL M. RAMAIYA. OF PURCHASE AND SALE OF SHARES ON INVESTMENT ACCOUN T ARE VERY LOW AND THE HOLDING PERIOD IS VERY HIGH WITH MINIMUM OF 1 MONTH TO 7 MONTHS APPROXIMATELY. HE SUBMITTED THAT THE ASSESSEE HAS DEALT IN ONLY 14 SCRIPS FOR THE PURCHASE OF INVESTMENT ALTHOUGH THE NUMBER OF S HARES MAY BE MORE. 4.2 AGAIN REFERRING TO PAGE 6 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT OUT OF THE TOTAL SHORT TERM CAPITAL GAIN OF ` 1 81 06 413/- THE MAJOR PROFIT EARNED BY THE ASSESSE E IS FROM 1 SCRIP I.E. SIEMENS INDIA LTD. AMOUNTING TO ` 1 62 21 448/-. THE SHARES WERE PURCHASED ON 3.6.2005 AND WERE SOLD IN PIECEMEAL BASIS STARTI NG FROM 8 TH SEPTEMBER TILL 28 TH NOVEMBER. THUS THE HOLDING PERIOD IS MORE THAN 3 MONTHS IN THE CASE OF THE AFOREMENTIONED SHARES. HE SUBMITTED THAT THE A SSESSEE HAS NOT UTILISED ANY INTEREST BEARING BORROWED FUNDS AND HAS UTILISE D ONLY CAPITAL OF THE FAMILY MEMBERS. FURTHER INVESTMENT IN SHARES HAD GONE UP F ROM ` 4.97 CRORES IN THE IMMEDIATELY PRECEDING A.Y.TO ` 18.71 CRORES AS ON 31 ST MARCH 2006. ALL THE SHARES WERE VALUED AT COST ONLY WHICH HAS BEEN ACCE PTED BY THE A.O. AND THE SHARES ARE NOT TREATED AS STOCK IN TRADE BY THE A.O . AND NOT VALUED AT COST OR MARKET PRICE WHICHEVER IS LESS. HE SUBMITTED THAT THE OBSERVATION OF THE LD. CIT(A) THAT THE NATURE AND MANNER OF TRANSACTION DE MONSTRATES THAT THE ASSESSEE WAS ENGAGED IN ONLY ONE ACTIVITY OF TRADIN G IN SHARES IS INCORRECT AND CONTRARY TO THE FACTS ON RECORD INASMUCH AS THE ASS ESSEE HAD MADE INVESTMENT IN SHARES OF ABOUT ` 13 CRORES DURING THE YEAR. 4.3 SO FAR AS THE LONG TERM CAPITAL GAINS OF ` 35 34 865/- HAS BEEN CONSIDERED AS BUSINESS INCOME BY THE A.O. AND UPHEL D BY THE LD. CIT(A) THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SHARES OF MARUTI UDYOG LTD. AND TATA MOTORS LTD. ON WHICH THE ASSESSEE EARNED LONG TERM CAPITAL GAINS HAVE BEEN HELD FOR A PERIOD OF MORE THAN 1 YEAR. SINCE HE HELD THE SHARES FOR MORE THAN 1 YEAR IN TERMS OF PROVISIONS OF SECTION 2(29A ) AND 2(29B) R.W.S. 2(42A) THE GAINS EARNED FROM THE SHARES SHOULD BE TREATED AS LONG TERM CAPITAL GAIN. 8 ITA 5081 /M/2009 ATUL M. RAMAIYA. FURTHER IN THE PRECEDING YEARS THE INVESTMENTS WER E SHOWN IN THE BALANCE SHEET AND WERE ACCEPTED BY THE A.O. THEREFORE THE REVENUE AUTHORITIES ARE NOT JUSTIFIED IN TREATING THE GAIN AS BUSINESS INCOME. SO FAR AS THE RELIANCE ON THE DECISION OF DEEPA SHAW (SUPRA) BY THE LD. CIT(A) T HE LD. COUNSEL FOR THE ASSESSEE REFERRING TO A PLETHORA OF DECISIONS OF TH E CO-ORDINATE BENCHES OF THE TRIBUNAL SUBMITTED THAT THE SAID DECISION IS NO LO NGER A GOOD LAW. 5. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR THE ASSESSMENT WAS COMPLETED U/S 1 43(1). IN THE A.Y. 2004- 05 DUE TO SMALLNESS OF THE AMOUNT THE DEPARTMENT H AS NOT MADE ANY INVESTIGATION. FURTHER PRINCIPLES OF RES-JUDICATA DO NOT APPLY TO INCOME-TAX PROCEEDINGS AND EACH YEAR IS SEPARATE AND DISTINCT. REFERRING TO THE ORDER OF THE LD. CIT(A) HE SUBMITTED THAT THE LD. CIT(A) HA S GIVEN DETAILED ANALYSIS OF THE MODUS OPERANDI OF THE ASSESSEE WHICH SHOULD BE UP-HELD. 6. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT ALTHOUGH AN AMOUNT OF ` 67 20 100/- WAS DECLARED AS SHORT TERM CAPITAL GAI N IN A.Y. 2005-05 NO NOTICE U/S 148 OR 263 HAS BEEN ISSUED BY THE REVENUE. THEREFORE HAVING ACCEPTED THE RETURN OF THE ASSESS EE FOR THE LAST SO MANY YEARS THE REVENUE IS NOT JUSTIFIED IN TAKING A DIF FERENT STAND AND TREATING THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN OF THE ASSESSEE AS BUSINESS INCOME. RELYING ON THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. GOPAL V. PUROHIT REPORTED IN 228 CTR 058 2-BOM HE SUBMITTED THAT RULE OF CONSISTENCY SHOULD APPLY. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE DETAILS FURNISHED BY THE ASSESS EE IN THE WRITTEN SUBMISSION WE FIND THE DETAILS OF HOLDING PERIOD AND THE FREQU ENCY OF PURCHASE AND SALE OF 9 ITA 5081 /M/2009 ATUL M. RAMAIYA. SHARES ON INVESTMENT ACCOUNT GIVING RISE TO SHORT T ERM CAPITAL GAINS ARE AS UNDER:- SR. NO. NAME NO. OF SHARES PURCHASE D ON SOLD ON HOLDING PERIOD MONTH & DAYS FREQUE NCY OF PURCHA SE FREQUE NCY OF SALE 1 BANK OF BARODA 45 000 19.9.05 17.11.05 6.3.06 5 M-18 D. 3 M-20D. 2 1 2 BHARAT EARTH MOVERS 20 000 10.6.05 9.8.05 2 M (APPROX) 1 1 3 DABUR INDIA LTD. 27 000 4.1.06 5.1.06 2.3.06 16.3.06 2 M (APPROX) 2 2 4 GATEWAY DISRTIPARKS LTD. 5 000 9.1.06 10.1.06 24.2.06 1 M-15D. 1 M-14D. 1 1 5 HIRO HONDA MOTORS LTD. 5 000 5.1.05 24.6.05 5 M (APPROX) 1 1 6 HDFC BANK LTD. 1 835 22.11.05 22.12.05 6.3.06 1 M (APPROX) 3 M 18 D. 1 2 7 HDFC LTD. 1050 30.12.05 1.2.06 6.3.06 2M (APPROX) 1 (APPROX) 2 1 8 MARUTI UDYOG LTD. 12 000 27.9.05 28.11.05 2 MONTHS 1 1 9 SCI 35 000 3.6.05 1.9.05 8.9.05 3 M (APPROX) 1 2 10 SIEMENS INDIA LTD. (6 LOST OF THIS SCRIP WERE PURCHASED ON 3.6.05 AND SOLD ON SIX DIFFERENT DATES) 15 000 3.6.05 8.9.05 12.9.05 13.9.05 22.11.05 25.11.05 28.11.05 3 M (APPROX) 3 M (APPROX) 3 M (APPROX) 5 M (APPROX) 5 M (APPROX) 5 M (APPROX) 1 6 11 SUN PHARMACEUTICAL S LTD. 370 29.11.04 7.12.04 15.06.05 29.6.05 7 M (APPROX) 6 M (APPROX) 2 2 12 TATA CONSULTANCY SERVICES LTD. 11 275 3.2.05 22.6.05 30.06.05 4 M (APPROX.) 4 M(APPROX) 1 2 13 TATA STEEL LTD. 34 702 7.6.05 8.7.05 19.7.05 22.7.05 1 M (APPROX) MORE THAN 1 MONTH 1 3 14 UTI BANK LTD. 3 000 5.8.05 10.8.05 20.9.05 21.9.05 MORE THAN 1 MONTH 2 2 10 ITA 5081 /M/2009 ATUL M. RAMAIYA. 7.1 SIMILARLY THE INCOME FROM THE LONG TERM CAPITA L GAIN OF ` 35 34 865/- EARNED BY THE ASSESSEE IS ON ACCOUNT OF UNITS OF PR UDENTIAL ICICI TECHNOLOGIES FUND HSBC INDIAN EQUITY FUND AND SHARES OF MARUTI UDYOG LTD. AND TATA MOTORS LTD. THE UNITS OF PRUDENTIAL ICICI TECHNOLO GIES FUND WERE HELD FOR MORE THAN 5 YEARS. SIMILARLY THE HSBC INDIAN EQUI TY FUND WAS HELD FOR MORE THAN 1 YEAR AND 2 MONTHS. THE SHARES OF MARUTI UDY OG LTD. AND TATA MOTORS LTD. WERE HELD FOR MORE THAN 1 YEAR. UNDER THESE CIRCUMSTANCES WE HAVE TO SEE WHETHER THE INCOME FROM PURCHASE AND SALE OF SH ARES HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE OR AS BUSINESS INCOME AS DECIDED BY THE A.O. AND UP HELD BY THE LD. CIT(A). 7.2 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSES SEE WE FIND THAT IN THE ORDER PASSED U/S 143(3) FOR A.Y. 2002-03 THE A.O. HAS ACCEPTED THE LONG TERM CAPITAL GAIN AT ` 53/- INCOME FROM TRADING IN SHARES AT ` 1 03 52 501/- AND INVESTMENT IN SHARES SHOWN IN THE BALANCE SHEET AT ` 71 71 188/-. SIMILARLY IN THE ASSESSMENT ORDER PASSED U/S 143(3) FOR A.Y. 200 4-05 THE A.O. HAS ACCEPTED THE SHORT TERM CAPITAL GAIN AT ` 1 90 935/- LONG TERM CAPITAL LOSS AT ` 1 25 859/- AND INCOME FROM TRADING IN SHARES AT ` 6 86 31 402/-. THE INVESTMENT IN SHARES DECLARED AT ` 62 21 388/- HAVE NOT BEEN DISTURBED AND HAS BEEN ACCEPTED BY THE A.O. IN THE ASSESSMENT FO R A.Y. 2005-06 ALTHOUGH THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN O F ` 67 20 100/- LONG TERM CAPITAL GAIN OF ` 1 69 094/- AND INCOME FROM TRADING IN SHARES AT ` 1 22 78 806/- APART FROM INVESTMENT OF ` 4 97 70 411/- IN SHARES SHOWN IN THE BALANCE SHEET WE FIND NO NOTICE U/S 148 OR 263 HAS BEEN ISSUED ALTHOUGH FOR A.Y. 2006-07 THE A.O. HAS TREATED THE INCOME FROM SALE AND PURCHASE OF SHARES AS BUSINESS INCOME WHICH HAS BEEN UPHELD BY THE LD. CIT(A). 7.3 FROM A PERUSAL OF PURCHASE AND SALE OF SHARES W E FIND THAT IN CASE OF SHORT TERM CAPITAL GAIN THE HOLDING PERIOD OF THE S HARES IS FAIRLY LONG AND IN 11 ITA 5081 /M/2009 ATUL M. RAMAIYA. EACH CASE THE HOLDING PERIOD RANGES FROM MORE THAN ONE MONTH AND RANGES UP TO 7 MONTHS. NUMBER OF SCRIPS DEALT IN BY THE ASSE SSEE IS ONLY 14. THUS THE VOLUME AND FREQUENCY OF SHARES DEALT IN BY THE ASSE SSEE FOR EARNING SHORT TERM CAPITAL GAIN IS VERY LESS. FURTHER THERE IS NO REP ETITION OF TRANSACTIONS. IN CASE OF LONG TERM CAPITAL GAIN THE HOLDING PERIOD IS AL SO FAIRLY LARGE AND IN SOME CASES IT HAS GONE UP TO 5 YEARS. THE ASSESSEE ALL ALONG WAS SHOWING THE SHARES AS INVESTMENT IN BALANCE SHEET ON WHICH CAPITAL GAI N WAS EARNED. 7.4 THE INCOME FROM PURCHASE AND SALE OF SHARES AS BUSINESS INCOME OR INCOME FROM CAPITAL GAIN (BOTH SHORT TERM AND LONG TERM CAPITAL GAIN) IS A MIXED QUESTION OF LAW AND FACT. EACH CASE DEPENDS ON ITS OWN SET OF FACTS. SINCE IN THE INSTANT CASE THE VOLUME AND FREQUENCY OF THE TRANSACTIONS ARE VERY LOW HOLDING PERIOD IS FAIRLY LARGE I.E. FROM 1 MON TH TO 7 MONTHS IN CASE OF SHORT TERM CAPITAL GAIN AND MORE THAN ONE YEAR TO MORE TH AN FIVE YEARS IN CASE OF LONG TERM CAPITAL GAIN AND SINCE THERE ARE NO REPET ITION OF TRANSACTIONS AND SINCE THE REVENUE AUTHORITIES IN THE PAST HAVE ACCE PTED THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN OF THE ASSESSEE IN SCRUTINY ASSESSMENT AND SINCE THE ASSESSEE HAS VALUED THE INVESTMENT AT COS T IN THE BALANCE SHEET CONTINUOUSLY THEREFORE WE FIND FORCE IN THE SUBMI SSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT PROFITS FROM SALE OF SHARES SHOUL D BE TREATED AS INCOME FROM CAPITAL GAIN AND NOT AS BUSINESS INCOME. IT IS ALS O A FACT THAT AFTER TREATING THE INCOME FROM PURCHASE AND SALE OF SHARES AS BUSINESS INCOME FOR A.Y. 2006-07 WHICH HAS BEEN UPHELD BY THE LD. CIT(A) NO NOTICE OF U/S 148 OR U/S 263 HAS BEEN ISSUED FOR A.Y. 2005-06 IN WHICH THE ASSESSEE HAS SHOWN SUBSTANTIAL SHORT TERM CAPITAL GAIN. CONSIDERING THE TOTALITY OF THE FACTS OF THE PRESENT CASE WE ARE OF THE CONSIDERED OPINION THAT THE INC OME FROM PURCHASE AND SALE OF SHARES BY THE ASSESSEE DURING THE IMPUGNED ASSES SMENT YEAR SHOULD BE TREATED AS SHORT TERM AND LONG TERM CAPITAL GAIN AS DECLARED BY HIM. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLO WED. 12 ITA 5081 /M/2009 ATUL M. RAMAIYA. 7.5 THERE IS ONE MORE GROUND IN THE ASSESSEES APPE AL RELATING TO DISALLOWANCE OF BUSINESS PROMOTION EXPENSES OF ` 1 91 250/- BY THE A.O. WHICH HAS BEEN UPHELD BY THE LD. CIT(A). 7.6 THE LD COUNSEL FOR THE ASSESSEE DID NOT SERIOU SLY CHALLENGE THIS GROUND BECAUSE OF SMALLNESS OF AMOUNT. ACCORDING THIS GRO UND BY THE ASSESSEE IS DISMISSED. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 23.9.2011. SD/- SD/- (D. MANMOHAN) (R.K. PANDA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED 23.9.2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XX MUMBAI 4. THE CIT -20 MUMBAI 5. THE DR BENCH A 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 13 ITA 5081 /M/2009 ATUL M. RAMAIYA. DATE INITIALS 1 DRAFT DICTATED ON 15.7.2011 19.7.11 24.7.11 19.9.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 18.7.2011 19.7.11 24.7.11 20.9.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER